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The United States’ Long-Term Foreign-Currency IDR, essentially the national credit rating, has been downgraded from AAA to AA+. At the top of the list of reasons that Fitch provided for the downgrade is an “erosion of governance” that has persisted in the United States over the past two decades, culminating in the Jan. 6, 2021 coup attempt.
Straight Arrow News contributor Peter Zeihan breaks down what this means for Americans and how it impacts the larger U.S. economy. He warns that Americans should only expect this problem to become more severe over the near-term future, owing both to political and financial outlooks.
Excerpted from Peter’s Oct. 25 “Zeihan on Geopolitics” newsletter:
We’ve all heard about the drop in the U.S. credit rating, but what does it mean? Given the United States’ size and global standing, the resulting impact on financing costs is nominal. Think of this like your personal credit rating — sure, life’s easier with an 850 credit score, but a 700 isn’t the end of the world.
The bigger concern lies in the worsening fiscal conditions caused by growing budget deficits. With successive administrations exacerbating this issue and the boomers transitioning from taxpayers to tax beneficiaries, the U.S. has its hands full. And that’s before you mix in threats of the U.S. not fulfilling its debt obligations…
The mounting uncertainty around this issue could impact credit costs and everyday financial transactions. So, unless there’s a massive shift in political responsibility and involvement, this budget deficit issue will remain hardwired into our system.
